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 It is the Central Bank of India Established in “1st April 1935” under the “RESERVE BANK OF INDIA ACT”. Its head quarter is in Mumbai (Maharashtra). Its present governor is “MR. D Subbarao”. It has “22 Regional Offices”, most of them in State capitals.

Initially it was Privately Owned. It moved to Mumbai in 1937. .  Initially it was located in Kolkata. It was started as Share-Holders Bank with a paid up capital of 5 crores.BRIEF HISTORY  It was set up on the recommendations of the “Hilton Young Commission”.

the Reserve Bank is fully owned by the Government of India.Since Nationalization in 1949. .

PREAMBLE The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as :“…To regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage." .

FUNCTIONS OF RBI  Issue of currency  Development role  Banker to government  Banker to bank  Role of RBI in inflation control  Formulate monetary policy  Manager of foreign reserve  Clearing house functions  Regulations of banking system .

Issue of Currency  To ensure adequate quantity of supplies of currency notes and coins of good quality.g: NABARD. Performs a wide range of promotional functions to support national objectives. for e. It has to keep in forms of gold and foreign securities as per statutory rules against notes & coins issued. . Issues new currency and destroys currency and coins not fit for circulation. Developmental Role  To develop the quality of banking system in India. To establish financial institutions of national importance.IDBI etc.

It acts as adviser to the Government on all monetary and banking matters.Banker to the Government: Performs all banking function for the central and the state governments and also acts as their banker excepting that of Jammu and Kashmir. It makes loans and advances to the States and local authorities. .

S follow the Know Your Customer guidelines. RBI regulates the opening of branches by banks. .Banker to banks:  Maintains banking accounts of all scheduled banks.F. It ensures that all the N.B. RBI also regulates the opening /installation of ATM Fresh currency notes for ATMs are supplied by RBI.

It issues guidelines and directives for the commercial banks. Collection and publication of data. RBI has invited applications from more banks for direct import of gold to curb illegal trade in gold and increase competition in the market. Currently 17 Indian banks are involved in the trade of gold in India. .The Reserve Bank of India also regulates the trade of gold.

When direct taxes increased and government spending increased than the disposable Income of the people reduces and hence the demand reduces.  Monetary Policy: It includes the interest rates. When the bank increases the interest rates than there is reduction in the borrowers and people try to save more as the rate of interest has increased.Role of RBI in inflation control  Inflation arises when the demand increases and there is a shortage of supply There are two policies in the hands of the RBI. .  Fiscal Policy: It is related to direct taxes and government spending.

Formulate monetary policy  Maintain price stability and ensuring adequate flow of credit in the economy. It formulates implements and monitors the monetary policy. Instruments: qualitative & quantitative. .

“Variable Reserve Ratio” it includes C. Direct Action 2. It also includes “Repo Rate”. Moral persuasion 3.R. “Open Market Operations” buying and selling of government securities. Legislation 4.Quantitative Measures Quantitative Measures “BANK RATE” also called “Discount Rate”.L.R Qualitative Measures 1.R and S. Publicity .

This is typically done on a quarterly basis to control inflation and stabilize the country’s exchange rates.BANK RATE  It’s the interest rate that is charged by a country’s central bank on loans and advances to control money supply in the economy and the banking sector. A fluctuation in bank rates Triggers a Ripple-Effect as it impacts every sector of a country’s economy. A change in bank rates affects customers as it influences Prime Interest Rates for personal loans. The present bank rate is 9% .

the central bank does it. When the repo rate increases borrowing from the central bank becomes more expensive. Repo rate is the rate at which our banks borrow currency from the central bank. In order to increse the liquidity in the market. The present repo rate is 8% .REPO RATE Whenever the banks have any shortage of funds they can borrow it from the central bank.  A reduction in the repo rate will help banks to get Money at a cheaper rate.

REVERSE REPO RATE  It’s the rate at which the banks park surplus funds with reserve bank. It is mostly done . The present reverse repo rate is 7% . when there is surplus liquidity in the market by the central bank. While the Repo rate is the rate at which the banks borrow from the central bank.

•The present CRR rate is 4.• Cash Reserve Ratio (CRR) is the amount of Cash(liquid cash like gold)that the banks have to keep with RBI.75%. •This Ratio is basically to secure solvency of the bank and to drain out the excessive money from the banks. .

. •SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit. or gold or govt. approved securities (Bonds) before providing credit to its customers.•It is the amount a commercial bank needs to maintain in the form of cash. •The present SLR rate is 23%.

This punishment is very severe of a commercial bank. By moral pressure it may prohibit or dissuade commercial banks to deal in speculative business. 2. Direct Action: The central bank may take direct action against commercial banks that violate the rules. . Moral persuasion: It is another method by which central bank may get credit supply expanded or contracted.1. orders or advice of the central bank.

Publicity: The central bank may resort to massive advertising campaign in the news papers. Legislation: The central bank may also adopt necessary legislation for expanding or contracting credit money in the market. magazines and journals depicting the poor economic conditions of the country suggesting commercial banks and other financial institutions to control credit either by expansion or by contraction.  4. . 3.

 RBI buys and sells foreign currency to maintain the exchange rate of Indian Rupee v/s foreign currencies like the US Dollar.Manager of Foreign Exchange To facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India. . Pound and Japanese yen. Euro. It acts as a custodian and Manages the Foreign Exchange Management Act.(FEMA) 1999.

The RBI manages 14 major clearing houses of the country situated in different major cities. . The State Bank of India and its associates look after clearing houses function in other parts of the country as an agent of RBI.Clearing House Functions  The RBI operates clearing houses to settle banking transactions.

. The Reserve Bank issues such license only to those banks which fulfill condition of the bank. The Reserve Bank has following powers in this regard: •Licensing: According to the section 22 of the Banking Regulation Act. every bank has to obtain license from the Reserve Bank.The prime duty of the reserve Bank is to regulate the banking system of our country in such a way that the people of the country can trust in the banking Up to perform its duty.

 Branch Expansion: Section 23 requires every bank to take prior permission from Reserve Bank to open new places of business in India. .  Power of inspection of Bank: Under Section 35. the Reserve Bank may inspect any bank and its books and accounts either at its own initiative or at the instance of the Central Government. Management: Section 10 of the Banking Regulation Act embowered the Reserve Bank to change manager or director of any bank if it considers it necessary or desirable.